Lessons learned from 30 world business families With the 6C formula for success and (not) success in Thai family businesses (Part 3)
The previous episode talked about 6 + 1 family businesses (that were unsuccessful in inheriting the business). This episode will talk about 3 family businesses that have conflicts. Even if the business is successful, the original family business owner may no longer be a major shareholder. Especially the lack of planning for business succession.
7. EVA Air's business has no succession plan: The Zhang family.
From many examples, it can be seen that Asian family business There is often a lack of planning for the transfer of family business. EVA Air, the founding family business owner was Zhang Yung-fa (Chang Yung-fa), when he passed away. Just specify that the document is written by hand. “I will give it to the youngest child. is his sole heir. and is the chairman of the executive business group” but is not a valid will according to law Even though the youngest child is a business person.
Therefore, it causes conflict with the 3 older brothers who are children from different mothers. When the will is not legally valid Therefore, the three brothers were removed from their positions as directors. Conflict arises Because in this case there is no share structure. and making a valid will according to the law
Conflict until it arose again when the older brother quarreled with the two younger siblings, so the youngest sibling, who had previously been an executive and had separated to run a private airline (Starlux Airlines), became group president of the subsidiary company. And at this time, the two younger brothers also removed the eldest brother from all of the EVA and Evergreen groups. Until now, we don't know what the outcome will be, but it is certain that family members' conflicts will make it difficult for the business to grow. can
lesson learned
Conflict problems among family members Let's start with the issue of the invalidity of the business owner's will. Nothing was done in matters of family constitution. Company regulations Allocation of shares: The founder of the business had not planned it beforehand. Even this family business has not experienced any problems yet. But when family members have such conflicts How to make the family business grow exponentially is a problem that remains to be seen.
If you apply the 6C formula from structuring, making legal documents family constitution Especially regarding business succession planning, if you plan from the beginning, problems that arise should be preventable.
8. The Pritzker family business, owners of the Hyatt hotel chain: A good idea, but unfair.
This family business began with the foresight of a family of three lawyers who jointly entered into a business acquisition (M&A) and brought it into restructuring. and created a Holding Company, buying and selling until making a large profit And most importantly, he bought the Hyatt Hotel in Los Angeles for 3 million dollars and expanded the business until it became a world-class hotel.
Until the 4th generation with 11 heirs, this family business had to make a letter like a will specifying who their children would be as business leaders, and there were two other people who helped manage it. by other heirs There is no participation in management at all.
And the important thing is This founder's letter of instruction states that the business is owned by family members and owned by everyone. Members must create wealth for the family. and use money from the cartel only when necessary and not limited which means Money in the company is not a source of income for family members to receive. (Therefore, it is considered that a conflict of interest has begun)
Later, conflicts between the 4th generation heirs arose because other siblings Want to divide the wealth and separate completely from the family business Because other heirs feel that the deliverer is not fair and lacks transparency of the leader. Whether it is a purchase of a business where 3 executives in their own name received more shares than the other heirs who only received 1.5 to 3%, and there was also a transfer of the benefits of the fund to the mother-in-law of the 3 siblings.
By filing a lawsuit Finally, a compromise was negotiated. and finally the family business Sold 60% of the majority of shares to Berkshire Hathaway of Warren Buffet, even though the business is prosperous and developed later today. But family members clashed and could no longer hold a majority shareholding.
lesson learned
The founder of the business sets guidelines that are unfair to the heirs. In particular, the compensation or money is not clearly specified for the heirs. Makes it impossible to have money to spend Moreover, forcing heirs to live together without a suitable source of income is It is an extremely inappropriate thing to do. And if the three business leaders cannot build confidence Acceptance from other heirs Because of the lack of transparency, lawsuits arose.
Therefore, if this family has designated shares Establishment of a holding company structure, dividend payment policy Appointment of executives In the family constitution and company regulations, there is a solution because each member of the family has different needs. Even though this family business has not experienced any business failures, But most ownership is gone. Conflict among family members is probably something that can be avoided. If planned from the beginning, especially formula 6C
In Thailand, if we were to compare with business groups that operate hotels similar to the Pritzker family, it would be an example of the Chirathivat group that manages Central Hotel, the Minor Group that manages Anantara NH Hotel, and the Dusit Thani Group. The lessons of the Hyatt Hotel should also be learned to prevent history from repeating itself.
9. Family business: Guinness Brewery
This family has been in the beer business for more than 258 years, but the heirs who inherited the business have reached the 7th generation, having inherited it for only about 233 years because the shares were divided equally until the shares were dispersed. and the role of heirs gradually decreased Because many people do not have the ability to do business. Including designating the eldest heir or eldest son to be the leader and when the leader lacks ties to the business and has no ties to the business. Therefore, it must be opened for outsiders or professionals to manage.
Moreover, mergers and acquisitions by professionals Make the business expand bigger Professional executives play a more important role than family members. Coupled with the acquisition, some family members were charged with being insiders for a period of time, causing damage to their reputation. and family members who are executives do not supervise outside executives well enough Until the shares were eventually diluted when the business expanded and increased capital until the family owned less than 10 percent of the shares and no longer had any members serving as directors or as the company's president (similar to LVMH).
lesson learned
Share allocation, share allocation and the role of family members It is absolutely necessary. In considering how it should be divided, consideration should be given to the heirs who manage it. Have more shares instead of dividing shares equally among each person. Because the number of family members is increasing. Family members who manage Not having enough stocks The heir also has no interest in managing to inherit the business. Because they do not have the right to have a voice in determining the direction of the company.
merger Stock market fundraising by professionals without family members having knowledge but must rely on external professional administrators and family members do not participate in being directors. As a result, the proportion of shares of family members is gradually decreasing. Therefore, the next generation of heirs Lack of commitment and motivation to continue the family business or inherit it. until the business was taken over by a merger
Therefore, consideration is the third C: Compensation. The share division must be fair and equitable. But it's fair and just. Does not mean equal shares (Fair does not mean equal). Requiring the holding of shares through a Holding Company to be a major shareholder in the operating company and having family members who manage it hold shares in the operating company. It may be an option (use the 3st C, Corporate Structure) and having a family constitution will help prevent this problem.
Businesses in Thailand that should be learned and studied together are: Boon Rawd Brewery's business and ThaiBev's business who are doing a similar beverage business, with Boonrod's Thai family business being almost a hundred years old But the ThaiBev business is just getting started. By studying the lessons learned from The Guinness, the family of the family business will likely learn from such mistakes as well.
10. LVMH Business
The LVMH business was born from a merger. of the champagne production company Moët & Chandon and the cognac brand Hennessy before becoming “MH” by being listed on the stock exchange. But the shareholders who started the business Only holds 22 percent of the shares, but the rest are owned by people outside the family. An attempt was made to buy shares of Moët & Hennessy. A professional executive named Alain Chevalier invited the owner of Louis Vuitton, Henri Ragamier, to take over the business. It is a company called LVMH. The merger of Louis Vuitton and Moët Hennessy (the company that merged between Moët & Chandon and Hennessy) was a merger of 4 families, holding more than 51% of the shares, with the son-in-law of the founder It is he who makes the decision to merge the business. And later there was a conflict.
Eventually, they agreed to sell the business to Bernard Arnault, who took over the business. Because of conflicts between the shareholders, Ragamier and Chevalier, Bernard joined with the heirs of the Ragamier family, with Louis Vuitton as the major shareholder, but Bernard later abandoned Ragamier. Becoming an ally of the Chevalier group instead, buying 24% of the shares, a lawsuit ensued, but in the end Bernard won the case.
Since then, Bernard has expanded his business by adding many different brand names. Currently, Bernard has 5 heirs and is allocating learning and dividing it for each child to be a leader in each unit. The author of the article has been following in The Standard who will be the leader in place of Bernard, whose age has been extended from 75 years to 80 years. Now he has appointed his youngest son to lead the group of the Holding company that holds a majority share in LVMH is therefore worth following.
lesson learned
Perhaps listing on the stock exchange if the shareholding structure is not well and appropriately organized beforehand. Regardless of whether it is a Holding Company or a determination of the type of shares. There are risks in the family business. The business can be taken over or acquired by outsiders without consent, which is called Hostile Take Over. This is one reason why good family businesses Therefore do not want to be listed on the stock exchange.
Lessons from failure for family business owners Those who started a family business but lost ownership or ownership of shares to outsiders or professionals is something that should be learned. And conflicts that arise may arise from a lack of agreement or family constitution. In addition, merging four families makes it difficult to plan and manage the business.
In summary, it was found that the problems of the three family businesses above were caused by a lack of family business succession planning. Structuring shareholding through a good and appropriate structure, such as a Holding Company, unfair and appropriate allocation of shares. Less involvement of business heirs These lessons and family business succession planning can be considered a recipe for (un)success.
5 (un)successful formulas: causing the collapse of the family business
If we were to summarize the (un)successful formula of a family business. That will make it impossible to inherit the family business as follows:
- Not organizing the company structure and shareholding correctly from the beginning
- Failure to prepare complete legal documents
- Don't let things go by not allowing business succession planning. Let it be natural.
- There is no need to communicate with the family. Just wait and order, don't listen.
- Let professionals take over management without supervision from family members.
If you (not) complete these 5 formulas, the family business will end on its own. without having to inherit the family business anymore
In the next issue, I will look for examples of good family companies. that were successful to continue telling each other
